BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    SB 1476


                                                                    Page  1





          SENATE THIRD READING


          SB  
          1476 (Committee on Governance and Finance)


          As Amended  June 16, 2016


          Majority vote


          SENATE VOTE:  37-0


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Revenue &       |9-0  |Ridley-Thomas,        |                    |
          |Taxation        |     |Brough, Dababneh,     |                    |
          |                |     |Gipson, Mullin,       |                    |
          |                |     |O'Donnell, Patterson, |                    |
          |                |     |Quirk, Wagner         |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
           ------------------------------------------------------------------ 


          SUMMARY:  Establishes general requirements for all new or  
          extended voluntary tax contribution funds (VCFs).  Specifically,  
          this bill:  


          1)Requires the words "voluntary tax contribution" to be included  
            as part of the name of the fund.








                                                                    SB 1476


                                                                    Page  2







          2)Requires the administering agency's Internet Web site to  
            report the process for awarding money, the amount of money  
            spent on administration, and an itemization of how program  
            funds were awarded by the agency, including information  
            regarding recipients of funds.


          3)Defines an "administering agency" as the state agency or other  
            governmental entity, other than the Franchise Tax Board (FTB)  
            and the State Controller, to which funds are allocated to  
            accomplish the purposes of the voluntary tax contribution  
            designation.


          4)Provides, unless otherwise specified, for each VCF's automatic  
            sunset on January 1 of the seventh calendar year following the  
            VCF's first appearance on the personal income tax (PIT)  
            return.


          5)Requires each VCF to meet a minimum contribution threshold of  
            $250,000 each calendar year to remain on the PIT return.


          6)Requires contributions made to each VCF to be continuously  
            appropriated to the administering agency to be spent, as  
            specified.


          7)Specifies that these requirements only apply to new or  
            extended VCFs that take effect on or after January 2, 2017.


          EXISTING LAW:   


          1)Allows taxpayers to contribute amounts in excess of their PIT  








                                                                    SB 1476


                                                                    Page  3





            liability to one or more of 19 VCFs on the 2015 PIT return.


          2)Provides a specific sunset date for each VCF, except for the  
            California Seniors Special Fund and the State Parks Protection  
            Fund.


          3)Requires each VCF to meet an annual minimum contribution  
            amount to remain in effect, adjusted annually for inflation  
            based on the percentage change in the California Consumer  
            Price Index, except for the California Firefighters' Memorial  
            Fund, the California Peace Officer Memorial Foundation Fund,  
            and the California Seniors Special Fund.


          4)Provides that upon repeal of a VCF, any contribution  
            designated on a timely filed original return for the taxable  
            year immediately preceding the date of repeal shall continue  
            be transferred and disbursed, as specified.


          5)Specifies how contributions shall be allocated in the event  
            that no designee fund is specified, or if an individual  
            designates a contribution to more than one fund and the amount  
            available is insufficient to satisfy the total amount  
            designated.


          6)Specifies the order by which new contingent VCFs are eligible  
            to be added to the PIT return.


          FISCAL EFFECT:  None


          COMMENTS:  










                                                                    SB 1476


                                                                    Page  4





          1)Life Cycle of a VCF:  On December 9, 2015, the Senate  
            Committee on Governance and Finance held an oversight hearing  
            on VCF programs.  The hearing outlined the process by which a  
            taxpayer's voluntary contribution on his or her PIT return is  
            eventually allocated to the designated charitable fund.  The  
            current process starts with legislation enacting a VCF to be  
            established on the PIT return.  Next, a taxpayer contributes  
            to an established VCF on the PIT return.  The contribution is  
            collected by the FTB and distributed to the State Controller  
            by June 15th each year (contributions made after June are not  
            distributed to the State Controller until the following year).  
             The State Controller then distributes the money according to  
            the enacting legislation, which generally requires an  
            appropriation by the Legislature.  As a result, the  
            administering agency generally must submit a budget change  
            proposal (BCP) to the Department of Finance (DOF).  Once the  
            DOF approves the BCP, the appropriation is placed into a bill  
            to be approved by the Legislature.  The State Controller can  
            only transfer money in the fund to the administering agency to  
            effectuate its charitable purpose after the Governor signs the  
            appropriations bill.  Overall, years may pass before a  
            charitable donation made to a VCF is put toward its intended  
            use.


            When a VCF's its automatic sunset date is not renewed or fails  
            to meet its minimum contribution threshold, the VCF is removed  
            from the PIT return.  However, any contribution designated on  
            a timely filed original return for the taxable year  
            immediately preceding the date of repeal must continue to be  
            transferred and disbursed in accordance with the legislation  
            that enacted the VCF.  In other words, the balance of the VCF  
            should eventually reach zero as any remaining moneys in the  
            fund are allocated to the intended recipient.  After four  
            years of inactivity, all governmental funds, including VCFs,  
            are slated for abolishment by the DOF, with any unspent money  
            in the fund reverting to the General Fund.  The DOF must first  
            send the Joint Legislative Budget Committee (JLBC) a letter  
            detailing all funds to be abolished, giving JLBC the  








                                                                    SB 1476


                                                                    Page  5





            opportunity to object to any funds' abolishment.  However, the  
            letter does not specify the type of fund being abolished and  
            only lists the name of the funds.  Thus, it is often unclear  
            whether the fund proposed for abolishment is a general  
            government fund or a privately funded VCF with remaining  
            disbursements intended for a specific non-governmental  
            charitable purpose.


          2)Continuous Appropriation:  Current practice generally requires  
            a specific appropriation by the Legislature to allocate money  
            from a VCF to the FTB and the State Controller for  
            reimbursement of costs associated with administering the VCF,  
            with the balance allocated to the administering agency.  To  
            streamline the process by which taxpayers' voluntary  
            contributions are put toward their charitable purpose, this  
            bill provides that a continuous appropriation shall be made  
            from all prospective VCFs to the applicable administering  
            agency in accordance with the legislation that enacted the  
            VCF.  Money allocated to the FTB and the State Controller will  
            still be subject to a specific appropriation by the  
            Legislature. 


            According to the author, a continuous appropriation to  
            administering agencies will result in speedier allocation of  
            money for ongoing VCFs, and help ensure that any remaining  
            money in the fund upon repeal of a VCF will still be disbursed  
            as required to achieve its intended charitable purpose.  In an  
            attempt to maintain checks and balances on continuously  
            appropriated VCFs, this bill creates new online reporting  
            requirements for administering agencies so the public can  
            easily discern how the money is awarded and spent, including  
            how much money is first absorbed by the administering agency  
            on operating costs.  This bill also aims to prevent VCF money  
            from reverting to the General Fund by requiring the words  
            "voluntary tax contribution" in the name of the fund so the  
            JLBC is clearly notified when a VCF is slated for abolishment  
            and can take measures to redirect the money towards its  








                                                                    SB 1476


                                                                    Page  6





            intended charitable purpose, if desired.


          3)Committee Policy on VCFs:  The number of VCF "checkoffs" on  
            the PIT return has grown dramatically in recent years,  
            prompting the Assembly Committee on Revenue and Taxation  
            (Committee) to adopt specific rules regarding VCF legislation.  
             The policy requires all new checkoffs and existing checkoffs  
            seeking reauthorization to have sunset dates and meet a  
            $250,000 minimum contribution threshold adjusted for inflation  
            in subsequent years, among other provisions.  This bill  
            provides that all prospective VCFs have a seven-year sunset  
            date, two years longer than current practice generally  
            granting VCFs a five-year sunset date.  This bill also  
            provides that all prospective VCFs meet a minimum contribution  
            threshold of $250,000 and does not require the threshold to be  
            adjusted yearly for inflation, deviating from current practice  
            and the Committee's policy.  


            According to the author, these changes are intended to ease  
            administrative burdens on long-standing VCFs by reducing the  
            burden on non-profits that must otherwise seek new legislation  
            every five years, and leveling ever-increasing minimum  
            contribution amounts successful VCFs must meet to stay on the  
            PIT return.  While there are countless worthy causes that  
            would benefit from the inclusion of a VCF on the PIT return,  
            space on the return is limited.  Thus, it could be argued that  
            the current system for adding VCFs to the form is subjective  
            and essentially rewards organizations that can convince the  
            Legislature to include their fund on the form.  To the extent  
            that VCFs are able to remain on the PIT return for a longer  
            period of time, it may come at the expense of other charitable  
            causes seeking the same opportunity.




          Analysis Prepared by:                                             








                                                                    SB 1476


                                                                    Page  7





                          Irene Ho / REV. & TAX. / (916) 319-2098  FN:  
          0003478